Volatility in Housing: What Surges & Crashes the Most?
It depends on the value of the home.
What happens to home prices during the current housing boom and the next housing bust depends to some degree on whether the home is relatively “affordable” — whatever that means at today’s prices — or more expensive.
This is an important data point in the consideration for lenders that have to worry about their collateral value and for residential property investors and for homeowners who might want to get a foretaste of what is next.
The CoreLogic Case-Shiller Home Price Index offers an index based on three tiers of prices — low tier, middle tier, and high tier. Like small-cap stocks versus large-cap stocks, the less expensive homes show much more price movements up anddown and are thus far more volatile during booms and busts than their more expensive counterparts.
The Tiered Home Price Index (TPI) comprises 16 metro areas: Boston, New York City, Washington DC, Chicago, Denver, Las Vegas, Los Angeles, San Diego, San Francisco (five-county Bay Area), Miami, Atlanta, Minneapolis, Phoenix, Portland, Seattle, and Tampa.
Prices in the low tier rose 10.8% year-over-year, according to the TPI, published in August. For mid-tier homes, the index rose 7.5%. And for expensive homes prices rose 4.8%.
That principle has been true for the past 17 years of the index, covering two housing booms and one housing bust so far. The chart below shows how prices of homes in the low tier (yellow line) rise much faster than higher priced homes, but during the bust, they also plunge much faster and bottom out a lot lower (chart via John Burns Real Estate Consulting):
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